Petrochemical/chemical is one of the core industries providing products supporting our day-to-day lives. Currently, 96 per cent of the products we use daily are derived from these industries with their long and fragmented value chains. Due to the industries’ importance, it is vital to understand the challenges and find innovative solutions to address the pain points.
The petrochemical/chemical industry value chain starts all the way from oil and gas extraction, petroleum refining generating fuel products and petrochemical feedstocks, petrochemical plants producing bulk products; all the way downstream through the value chain in producing various plastics and chemicals used for manufacturing of fertilisers, textiles, industrial materials and a wide variety of consumer products such as shampoos, paints etc.
In order for this industry to function, it is essential to have tight coordination between all stakeholders within the value chain. However, with many stakeholders, dynamic supply and demand and a great many moving parts, it is not always easy for the industry to function smoothly.
Currently, the petrochemical industry in Asia is seeing a dynamic shift. After the 2020 crash in global markets due to the pandemic, 2021 saw a surge in demand as consumer spending returned and the need for products to combat COVID-19 drove sales.
This was especially true in Asia, given that the region is currently a key supplier of feedstocks such as naphtha, natural gas and basic petrochemicals like ethylene and propylene, all of which are used to make many of the aforementioned products.
Growth in 2022 was expected to continue based on the success of the previous year, and demand was forecasted to expand. However, demand instead began to wane, and various disruptions changed the flow of materials.
The Ukraine-Russia War has disrupted access to raw inputs, driving up prices and triggering a rise in costs that is filtering down to consumers. Higher prices potentially foreshadow a reduction in consumer spending as consumers may be forced to tighten their belts.
Furthermore, disruptions such as the trucking strikes in South Korea, which triggered shocks to the entire petrochemical value chain, impacting production, inventory, and higher costs, resulting in an inability to fulfil customer demand, are to be increasingly expected and proactively managed.
These events, amongst others, illustrate the potential risks the petrochemical industry is exposed to and highlight the need for innovative solutions that have the ability to address critical challenges.
In 2022, in response to a slew of crises, chemical and petrochemical groups of South Korea identified several key areas that the industry needs to address in order to improve and stabilise itself. These were as follows:
- Improved and integrated supply chain management and automation
- Digital on-site management
- Production optimisation
- End-to-end solutions and digitisation
A number of companies have started to work on tackling each of these areas. However, a new challenge has now emerged. Despite attempts to implement end-to-end digital solutions, interoperability remains an issue as each corporate attempts to build and own its own systems.
Rather than helping, this creates further fragmentation across processes and companies. Furthermore, because no single actor owns the entirety of their supply chain, these solutions cannot truly be designated as end-to-end.
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Addressing these challenges, solutions like Smart Tradzt are stepping in to deliver genuine end-to-end capabilities by providing modular, interconnected solutions that solve the industry’s key challenges. The team boasts a wide skillset and deep domain expertise across petroleum, petrochemical, supply chain, commercial excellence, digital trade and ecosystem collaboration.
Smart Tradzt has been working with companies to optimise and connect their processes and supply chains, boasting project experience with Exxon Mobil, Dupont, Siam Cement Chemicals and working with clients such as Petronas, Indian Oil and Cargill. By providing an array of modular solutions, Smart Tradzt has enabled companies to select and connect the solutions they need and seamlessly integrate them with current internal processes.
Smart Tradzt’s digital trade enablement platform is comprised of the following components:
B2B digital trade platform
One of the first challenges within the industries is that most of the sales and purchasing processes are still handled in an outdated way, with relationships and countless man-hours driving decisions. However, with the conventional sales channel disrupted by the COVID-19 pandemic, the adoption of digital trade platforms has accelerated with the increased remote way of working.
Smart Tradzt offers a complete B2B digital trade platform that, by adopting the e-commerce model to industry processes and standards, allows companies to seamlessly handle the entire customer-facing portion of their business with a private marketplace.
The platform overcomes major B2B e-commerce pain points for the industry by moving away from price transparency through a list pricing mechanism, similar to what Alibaba uses, and instead providing the ability to enable real-time quotations with customised price offers and availability checking based on customers’ unique requirements.
This results in seamless dynamic negotiation with customers, with no sales intervention. Therefore, providing commercial operations efficiency and greater customer experience.
Smart Tradzt ultimately believes that customers would, in fact, prefer public marketplaces, enabling them to conveniently source and choose suppliers offering the best options for their businesses. This would change the dynamics within these industries in important ways, and Smart Tradzt has already deployed such a solution for the Malaysian agricultural market.
This solution enables a many-to-many e-commerce marketplace that connects the industry and B2B/B2C buyers in a farm-to-table fashion. It is envisioned that the chemical and petrochemical industries will eventually adopt such digital channels with a hybrid of private and public marketplaces.
Dynamic pricing and commercial decision optimisation
Price volatility, reflecting the industry’s supply and demand situation, is a common feature of the commodity industry, where prices are often referenced to a commodity price index, such as Platts and ICIS, which is a proxy of the market price. Therefore, formula pricing is often used for price-risk management.
The current misconception in the industry is that nothing can be done to improve formula pricing because it is indicated by industry-level supply and demand. Furthermore, outside a few progressive digital leaders, most petrochemical companies are still under the illusion that enterprise resource planning solutions, such as SAP, are sufficient to manage their pricing.
Smart Tradzt provides its proprietary solution to optimise the pricing mechanism, taking into account pricing power, deal terms, market conditions, the supply situation and historical price realisation. This results in a science-based pricing approach which is also used to gain insights into customer price sensitivity and evaluate the demand to generate price guidance for both conventional and digital sales channels. This enables dynamic pricing to improve the company’s profitability and streamline the process.
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Another major pain point addressed by Smart Tradzt is enabling structured real-time negotiation by identifying negotiation tactics which protect the supplier’s margin and automatically generate counter offers to the customer’s requested discounts.
This minimises the typical issue of unwarranted discounts by sales personnel and can also enable companies to identify who their most valuable customers are, helping to strategically prioritise sales to customers with higher margins during commercial negotiation and improving support for customer value pricing approaches. These capabilities have enabled petrochemical companies to benefit significantly from their digital transformation, typically generating ROI equivalent to two or five per cent of sales.
Supply chain/value chain management and ecosystem collaboration
The supply chain has been in the spotlight in recent years due to disruptions caused by various factors such as climate change, geopolitical tensions, and many more, all highlighting the risks around the severity of supply chain disruption to global trade.
Today’s supply networks are rigid, built for the world of yesteryear with its highly stable and predictable business environments. Therefore, lacking the ability to respond to the variety of global events resulted in shortages, congestion, damage to brand reputation, and direct losses of revenue.
There is an urgent need for solutions not only to mitigate supply risks today but also to transition towards more transparent supply chains that are ready for future disruptions, as well as enabling newer ways of reducing costs through digitised ecosystem collaboration and value chain management. Smart Tradzt’s solution is positioned to address these challenges and capture supply chain cost-saving opportunities.
The platform enables end-to-end supply chain visibility, order status tracking, and disruption management and provides more accurate ETA predictions with AI. With their experience in this space, they have built a solution which not only evaluates options to handle shipment delays, assesses the impact of supply disruption and reprioritises customer order fulfilment based on customer segmentation but enables optimised costs through bulk shipment co-loading, load consolidation and multiple other solutions to temporary supply disruptions. Underpinning these capabilities is the ability to comprehensively model end-to-end costs and deal profitability.
As petrochemical companies seek growth beyond their domestic markets, the ability to tap into high-growth regions and smoothen cross-border trade becomes increasingly crucial. With Smart Tradzt’s end-to-end digital platform, it is now possible to efficiently collaborate across ecosystem partners in a trusted manner.
By enabling better availability of trade finance (e.g. letters of credit) to overseas customers using blockchain bill of ladings, and facilitating customs clearance, growth in cross-border trade can be enhanced.
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This combination of solutions, in addition to the other services that Smart Tradzt offers, allows Smart Tradzt’s customers to streamline their B2B processes, resolve multiple industry challenges and begin to realise the benefits of true end-to-end digitisation, commercial excellence and supply chain management.
CK Chung, CEO of Smart Tradzt says, “We see a shift away from the traditional digital areas of focus within plant/factory optimisation, customer relationship management (CRM) and supply chain planning (SCP), towards digital sales channels, commercial decision optimisation, and supply chain resilience (SCR). At Smart Tradzt, we are addressing these shifts by providing a future-ready, end-to-end platform that enables process transformation and leverages the synergy across different solution components to deliver process efficiency, holistic profit optimisation and more.
“We also support chemical companies’ strategic positioning to differentiate their commodity chemical and speciality chemical business and grow their overseas market effectively. In essence, petrochemical companies of the future would be competing on an ‘ecosystem by ecosystem’ and ‘value chain by value chain’ basis, while at the same time, tapping into opportunistic collaboration with other co-producers for win-win propositions.”
With the world rapidly adapting to a variety of changes and challenges, we are seeing that the chemical and petrochemical industries are no exception. As the industry contributes massively to so many of the products utilised in our daily lives, it is imperative that optimisation and cost-saving steps are taken, thereby also improving operations and downstream costs.
The call for improvement has been heard, and companies like Smart Tradzt are presenting corporates with solutions that speed up the journey towards full end-to-end digitisation and resolution of the challenges currently faced by the industry.
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